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Auto-enrolment credits proposed to reduce gender pension gap

Open-access content Wednesday 18th May 2022
Auto-enrolment credits proposed to reduce Gender Pension Gap

The UK government should introduce auto-enrolment credits for career breaks and radically change the framework of occupational pensions to reduce the widening gender pension gap, MPs have been told.

In an open letter to the Work and Pensions Select Committee, Hymans Robertson partner, Chris Noon, calls for a new approach to auto-enrolment that is similar to the way state pension credits are currently provided for certain individuals.

These contributions could be made annually based on a notional earnings level. For example, if notional earnings were set at £16,240, the government would pay an auto-enrolment contribution of around £800 a year (i.e. 8% x (£16,240 - £6,240). 

Noon argues that this approach is analogous to state pension accrual and reflects the fact that individuals taking careers breaks, for example, when caring for children or elderly relatives, are still adding value to society.

He suggests that this change could be made in conjunction with two further measures: substantially reducing the auto-enrolment earnings threshold to include more women on lower/part-time salaries, and removing the offset in qualifying earnings from the first £1.

This comes after government research published in February suggested that reducing the auto-enrolment threshold from £10k to £5k would bring over 800,000 individuals into the scope of auto-enrolment, of which around three-quarters would be women.

Explaining the arguments laid out in the letter, Noon said: “It’s becoming increasingly clear that one of the primary shortcomings with the UK pensions framework is in the retirement outcomes for women, compared to those enjoyed by men. 

“Evidence from the Pensions Policy Institute shows that this is largely due to the significant career breaks that many women take, as well as the higher prevalence of women working part time. 

“Introducing state auto-enrolment credits, alongside other measures to extend auto-enrolment, would make a significant difference in addressing the inequality. The government simply can’t ignore this inequality which is blatantly unfair to millions of women.”

Noon acknowledged that the proposed measures would come at a “significant cost” to the government.

Meanwhile, separate analysis of figures from the Department for Work and Pensions by Hargreaves Lansdown has found a narrowing state pension gap between men and women. 

The findings show that 1.5m women received less than £100 per week in state pension in November 2021, down from 1.67m the previous year. For men, 448,082 received less than £100 per week in state pension, compared to 465,479 in November 2020.

Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown, said: “The introduction of the new state pension in 2016 has significantly boosted the amount women receive and we are seeing a big drop in the number of women receiving less than £100 per week in state pension. 

“As more women retire into the new state pension system we should see incomes continue to grow, and the introduction of auto-enrolment will see many more women further build their retirement resilience with a workplace pension.”

 

Image credit: iStock

Author: Chris Seekings

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